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Following on from our e-briefing on 30 August 2012, R (On the application of the Members of the Committee of Care North East Newcastle) v Newcastle City Council [2012] EWHC 2655 (Admin) is the most recent case in which care home providers have asked the Court to consider whether a local authority has acted fairly when setting the rates that it is prepared to pay for care home placements.

Background to the case

The Claimant, an unincorporated association representing many of the care home providers in the Newcastle region, sought to challenge the Council’s decisions of 26 March 2012 (1) to fix the rates payable for the financial year 2012/2013; and (2) to require providers to agree the new rates by 30 April 2012, failing which the Council would refuse to make any new placements with those providers who did not agree the rates by that date. The Claimant issued judicial review proceedings on 25 June 2012. The Court granted permission for the claim and the case was heard on 24 and 25 September 2012. His Honour Judge Gosnell handed down his judgment on 18 October 2012.

Grounds of Challenge

There were 4 grounds of challenge, the first two of which the Court considered together:

1 & 2. The Council’s failure to inform itself of the actual costs to care home providers and the Council’s irrational behaviour in failing to take into account relevant considerations when setting the rates

It was clear from the evidence before the Court that the Council’s budget was set on the basis that care home rates would not increase for 2012/2013. The only source of information that the Council had used to inform its decision making was a PwC Fair Costs of Care report from 2010 (which was effectively an update on PwC’s report from 2007). Even then, the Council had done so using very controversial assumptions, some of which only came out during the course of the proceedings.

These assumptions included:

A figure for inflation which the Court found had been “plucked out of the air”;

Efficiency savings of 2% which the Court found to be “overly harsh...without any objective evidence that [the efficiency savings] could actually be achieved”; and

Stripping out return on equity or, at best, setting the return at somewhere between 0% and 5%, an assumption which the Court found was “without any real consideration for what effect this would have for a sustainable market in the care homes sector”.

The Judge found that the Council had sought to ascertain the actual cost of care by using the PwC model, but had populated it in a misleading way. The Council had wrongly given its decision makers the impression that the proposed rates were acceptable to the majority of providers and would enable a sustainable and profitable market to continue.

The Court therefore found that the Council had failed to inform itself of the actual costs of providing care and had acted irrationally in stripping out a return on equity and imposing a 2% efficiency saving.

3. The Council’s failure to consult with care home providers

The Claimant alleged that the Council’s consultation was not a genuine process through which providers’ views would be properly taken into account. This was borne out by the evidence before the Court. The judge held that the views of the providers were not accurately reported to the decision makers and the reasoning behind the Council’s decision making was not disclosed to providers until after its decision had already been made.

The Court therefore found that the Council had failed to properly consult with providers.

4. The Council’s unlawful behaviour in imposing discounts on providers at less than the “usual rate” and refusing to make placements with providers who refused to agree the discount

Certain providers had previously agreed to provide a discount to the Council on the Council’s usual rate (albeit reluctantly in most cases). However, those discounts were expressly stated as being time limited. Nonetheless, the Council sought to impose those same discounts for 2012/2013.

The Court found that the Council’s refusal to make placements unless providers agreed to extend the discounted period was an abuse of the Council’s dominant position. The Claimant therefore succeeded on its fourth and final ground.

Remedy awarded by the Court

As with all judicial review claims, the Court retains an absolute discretion to award such remedy as it sees fit. In this case, the Judge said that it would “offend justice” if there was no remedy. He therefore ordered:

A declaration that the Council’s decision of 26 March 2012 to set the rates was unlawful and should be quashed; and

A declaration that the Council should not refuse to make placements with providers who decline to accept placements on discounted rates.

Comment

This was a clean sweep for the Claimant, who succeeded on all grounds of challenge. Although the Judge acknowledged that these are difficult times for local authorities, in which they are forced to make savings across a number of service areas, he reinforced the message that proper consideration must still be given to the actual costs of providing care. This position is now very well established through case law over the past 12 to 18 months. Furthermore, a genuine and robust consultation process must be followed.

This case serves as a further reminder to local authorities of its obligations when setting care home fees. Merely paying lip service to consultation and/or failing to objectively set the rates will leave the authority open to criticism. In our experience, providers are reluctant to bring formal challenges unless authorities have failed to properly engage with providers and/or failed to really consider the relevant factors in relation to the costs of providing care. If authorities get this right, providers are less likely to commence proceedings and, even if they do, the Court will be reluctant to interfere in what it recognises as a difficult decision about where the authority should allocate scant resources.

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